1) | Project A | Project B | |||||||
Payback Period | 2.74 Years | 2.82 Years | |||||||
Working: | |||||||||
Payback period is the time upto which initial cost is recovered back. | |||||||||
Project A | Project B | ||||||||
Initial Investment | a | $ 3,70,000.00 | $ 5,30,000.00 | ||||||
Annual cash flows: | |||||||||
Sales revenues | $ 4,00,000.00 | $ 5,10,000.00 | |||||||
Variable expense | $ -1,80,000.00 | $ -2,50,000.00 | |||||||
Fixed-out-of-pocket operating costs | $ -85,000.00 | $ -72,000.00 | |||||||
Annual cash flows | b | $ 1,35,000.00 | $ 1,88,000.00 | ||||||
Payback Period (in Years) | a/b | 2.74 | 2.82 | ||||||
2) | Project A | Project B | |||||||
Net Present Value | $ 42,780.71 | $ 44,835.36 | |||||||
Working: | |||||||||
Present Value of annuity of 1 | = | (1-(1+1)^-n)/i | Where, | ||||||
= | (1-(1+0.19)^-5)/0.19 | i | 19% | ||||||
= | 3.057635 | n | 5 | ||||||
Project A | Project B | ||||||||
Annual cash flows | a | $ 1,35,000.00 | $ 1,88,000.00 | ||||||
Present value of | |||||||||
annuity of 1 | b | 3.057635 | 3.057635 | ||||||
Present Value of | |||||||||
Annual cash flows | c=a*b | $ 4,12,780.71 | $ 5,74,835.36 | ||||||
Cost of investment | d | $ 3,70,000.00 | $ 5,30,000.00 | ||||||
Net Present Value | e=c-d | $ 42,780.71 | $ 44,835.36 | ||||||
3) | Project A | Project B | |||||||
Internal rate of return (IRR) | 24.08% | 22.74% | |||||||
Working: | |||||||||
Internal rate of return is the rate at which net present value is zero. | |||||||||
Project A: | Project B: | ||||||||
Year | Cash flows | Year | Cash flows | ||||||
0 | $ -3,70,000.00 | 0 | $ -5,30,000.00 | ||||||
1 | $ 1,35,000.00 | 1 | $ 1,88,000.00 | ||||||
2 | $ 1,35,000.00 | 2 | $ 1,88,000.00 | ||||||
3 | $ 1,35,000.00 | 3 | $ 1,88,000.00 | ||||||
4 | $ 1,35,000.00 | 4 | $ 1,88,000.00 | ||||||
5 | $ 1,35,000.00 | 5 | $ 1,88,000.00 | ||||||
IRR | 24.08% | 22.74% | |||||||
Project A | Project B | ||||||||
4) | |||||||||
Profitability Index | 1.12 | 1.08 | |||||||
working: | |||||||||
Project A | Project B | ||||||||
Present Value of annual cash flows | $ 4,12,780.71 | $ 5,74,835.36 | |||||||
Cost of Investment | $ 3,70,000.00 | $ 5,30,000.00 | |||||||
Profitability Index | 1.12 | 1.08 | |||||||
Lou.. arlöw, а.di isionär mänägert r. Säge. Company, as än opportunity to manufacture. and sell one...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 25 % each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment Cost of equipment (zero salvage value) 370,000 530,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 23% each of the E last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B $ 390,000 $ 585,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product Product B $ 290,000 $ 490,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 340,000 $ 540,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 280,000 $ 480,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 340,000 $ 540,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 25% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 340,000 $ 525,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 340,000 $ 540,000 Annual revenues and costs:...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: ProductAProduct B Initial investment Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation...
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 25% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $360,000 530,000 Annual revenues and costs: $ 510,000...